Capital gains tax raid: why landlords are selling up

Landlords and other investors are rushing to sell up because of a widespread belief that the government will increase capital gains tax next month.

The urgency is being fuelled by concerns that any tax rise would be ushered in immediately after the budget — as early as midnight on October 30. Estate agents have reported buy-to-let investors settling for quick sales at lower prices to ensure that they complete before a tax rise.

Before the general election, the Labour party promised not to increase income tax, VAT or national insurance to raise money. This has led to intense speculation that the chancellor has left the door open for an increase in capital gains tax (CGT) — typically viewed as a tax on the wealthiest — as the government tries to plug the hole in the public finances

The share of rental properties up for sale is at a record high, according to the property website Rightmove, which it attributed to investor fears of a CGT increase.

Who pays CGT?

CGT is levied on the profits made from the sale of property (other than your main home); businesses; shares and most possessions with a gain of more than £6,000. Everyone gets a £3,000 tax-free annual allowance, but this has been eroded over the past two years and could change again.

Basic-rate taxpayers pay 10 per cent CGT on most assets and 18 per cent on gains made from residential property. Higher and additional-rate taxpayers pay 20 per cent on most assets and 24 per cent on property (previously 28 per cent).

‘I’m selling fast even though I won’t get the best price’

Paul Greenwood is racing to sell £1.2 million worth of buy-to-let homes.

Greenwood, 55, owns 26 rental properties in Leeds which are worth a combined total of £4 million and earn him £200,000 a year in rental income.

Last month he put eight on the market and has sold two for £110,000 each on the condition that contracts were exchanged before the budget.

“I’m attempting to cash in before a possible CGT rise because my bill would end up being substantially more, so there’s a lot of pressure on a quick sale,” said Greenwood, who asked for his name to be changed.

One of the biggest accountancy firms in the UK, Blick Rothenberg, said that the number of its clients selling assets or asking about doing so had surged in the past two weeks and was a third higher than normal. Its chief executive, Nimesh Shah, said: “There has been an increase in inquiries about completing transactions before the budget. There is always speculation and some activity before a budget, but given the government positioning, people are more sensitive than ever and want to take action because they are certain significant tax rises are coming.”

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‘We fear we have missed the boat’

Paul Connors put his two-bedroom buy-to-let flat in Devon on the market for £175,000 five weeks ago. He is meeting his estate agent next week to discuss reducing the price to £165,000 in a last ditch effort to sell it before the expected CGT raid.

Connors, 69, and his wife, Carol, 62, face another pressure to sell — their five-year fixed rate mortgage deal at 2 per cent expires in November.

“We will need to put up the rent by £300 a month so we can maintain the standard of living we have now,” said Connors, from Worcestershire. “Our tenants won’t be able to afford it.

“But the main reason we put the house up for sale was because of CGT — that really threw us over the edge. It seems like the government is penalising the average landlord.”

The couple have been landlords for nine years and have two other rental properties — a two-bed house in Rowley Regis, West Midlands, and a two-bed flat in Woolaston, Stourbridge — which they plan to put up for sale next month. Connors wishes they had listed them sooner.

“We’ve missed the boat because we didn’t expect the threat of CGT changes to become very real this quickly,” he said.

Why such a quick change?

Typically tax changes announced in a fiscal statement take effect from the beginning of the new tax year — but there have been notable exceptions around CGT.

When the former chancellor George Osborne increased the rate of CGT for higher and additional-rate taxpayers from 18 per cent to 28 per cent in June 2010, it kicked in from midnight on the day of the budget.

• A guide to buy-to-let mortgages• Compare mortgage deals

This is because giving too much notice of a CGT increase allows investors to sell up and raises less revenue for the government.

“I don’t say this lightly, but I think a mid-year CGT rate rise is very likely, like George Osborne did in 2010,” Shah said. “Mid-year rate rises are unusual and complicated, but it seems that this government is acting with urgency.”

How much will CGT go up?

Reeves is reportedly considering raising the rates in line with income tax, which would mean investors paying up to 45 per cent on profits. Last week the prime minister warned that his government’s first budget would be painful and that those with the “broadest shoulders” would be the most affected.

Since that speech, Shah said he had been fielding at least one client inquiry a day about CGT.

“My advice has always been that you should never plan with a crystal ball, but the tone of the prime minister, Keir Starmer, and Rachel Reeves’s recent messages have meant that people are fearful of what is coming and will kick themselves if they don’t do something and rates do increase,” he said.

Jason Hollands from the wealth manager Evelyn Partners said the past few weeks had been extremely busy with clients looking to sell assets and crystallise gains.

He said: “We are seeing clients in fear of a CGT rise looking to complete the sale of second properties in a real hurry.